In the new issue of Regulation, economist Pierre Lemieux argues that the recent oil price decline is at least partly the result of increased supply from the extraction of shale oil. The increased supply allows the economy to produce more goods, which benefits some people, if not all of them. Thus, contrary to some commentary in the press, cheaper oil prices cannot harm the economy as a whole.

Two long wars, chronic deficits, the financial crisis, the costly drug war, the growth of executive power under Presidents Bush and Obama, and the revelations about NSA abuses, have given rise to a growing libertarian movement in our country – with a greater focus on individual liberty and less government power. David Boaz’s newly released The Libertarian Mind is a comprehensive guide to the history, philosophy, and growth of the libertarian movement, with incisive analyses of today’s most pressing issues and policies.

Search form

Search this site

Trade Policy Analysis No. 1

U.S. Sanctions against Burma: A Failure on All Fronts

By
Leon T. Hadar

March 26, 1998

The U.S. policy of imposing unilateral trade and investment sanctions against Burma has proven to be a failure on all fronts. By forcing U.S. firms to disengage from Burma, that policy has harmed American economic interests and done nothing to improve the living conditions or human rights of the people of Burma.

Sanctions have denied Burmese citizens the benefits of increased investment by American multinational companies—investment that brings technoloygy, better working conditions, and Western ideas.

State and local sanctions against Burma have compounded the problem caused by federal sanctions and raised troubling constitutional questions.

Unilateral sanctions have alienated our allies in the region and strengthened the hand of China but achieved none of the stated foreign policy aims. If Washington had allowed the Association of Southeast Asian Nations to take the lead in setting policy toward Burma, the United States could have enjoyed a “win-win” situation—better relations with our allies and more influence over the regime in Rangoon.

As an alternative to the failed policy of sanctions, the United States should allow U.S. companies to freely trade with and investment in Burma. A pro-business approach to engagement would more effectively promote political, civil, and economic freedom around the world. Congress should enact legislation requiring a full accounting of the cost of sanctions and explicit justification on national security grounds before they can be imposed.

Introduction

The proliferation of unilateral economic sanctions by federal, state, and local governments against nations around the world has become a central trend in U.S. foreign policy in the post-Cold War era. Ironically, as the world moves toward a more liberal flow of products, people, and ideas and the adoption of the American free-market model, U.S. politicians—spurred by a coalition of labor unions, environmental lobbyists, human rights organizations, and ethnic groups—have increasingly succeeded in impeding globalization through an ever-widening array of economic sanctions.(1) Such intervention in the market undermines the competitive position of U.S. companies by preventing them from doing business in targeted nations and damages trade the same way traditional tariffs and quotas do.(2)

The successful campaign by American groups to force the U.S. government to impose economic sanctions against Burma highlights the damaging strategic, economic, and moral consequences of America’s new approach to determining foreign policy. It is a trend that weakens U.S. ties with Asia, reduces American diplomatic and economic influence, and retards creation of a favorable balance of power in the region. Sanctions have already damaged the interests of American companies operating in the region by undermining their reputations as reliable suppliers and denied U.S. firms the ability to compete aggressively with rival foreign firms for market share and profitable investments.

Present U.S. policy toward Burma is not going to bring meaningful change in the human rights practices of the regime and will probably make the bad situation in Burma even worse. Sanctions strengthen the hand of the ruling authorities by creating a scapegoat for their own internal policy failures and narrowing the opportunity of private individuals in Burma to expand their economic, social, and cultural contacts with the citizens of the West.

Sanctions: The New Tool of Choice of U.S. Foreign Policy

Unilateral economic sanctions have become a staple of U.S. foreign policy. According to a study issued by the National Association of Manufacturers, from 1993 through 1996 the United States promulgated 61 laws and executive actions to impose unilateral economic sanctions for foreign policy purposes. More than 35 countries have been targeted, including important trade partners such as Canada, Mexico, and Italy. Cambodia and Sudan joined the list in 1997. The NAM study found that the sanctioned countries represented 2.3 billion potential consumers of U.S. goods and services, or 42 percent of the world population, and $790 billion worth of export markets, 19 percent of the world’s total. It stated that “the economic implications of the unilateral actions have been seriously underestimated” since the above figures did not take into consideration all the countries affected by “secondary boycott” measures, which apply U.S. law to foreign companies doing business in a targeted country. And the study did not calculate the effects of sanctions that have been adopted at the state and local level.(3) Another study found that since 1993 Washington, states, and localities combined have slapped 142 unilateral sanctions on 41 countries.(4) And according to the U.S. Council on Competitiveness, more than $6 billion in U.S. export sales and 120,000 jobs were put at risk by U.S. unilateral actions.(5)

Most worrying from a constitutional perspective has been the flurry of state and local trade curbs aimed at foreign countries and companies. Massachusetts and more than a dozen counties and cities, including New York City and Berkeley, California, have already adopted sanctions that bar government purchases from companies that do business in China, Burma, and Nigeria. California, Texas, New York, New Jersey, North Carolina, Connecticut, and Rhode Island all considered similar sanctions before rejecting or tabling them. In most of the cases in which sanctions have been imposed, they go beyond barring the political entity itself from dealing with the targeted country to imposing the dreaded secondary boycott on companies that do business in the targeted country.

Indeed, with the collapse of communism and the Soviet Union, the ideological and strategic challenges that helped to define the U.S. national interest and provide a driving force for American diplomacy and national security for almost five decades have disappeared. In place of the old policy is a new interest-group-based foreign policy in which the ideological convictions and political agendas of small but vocal activist groups have come to dominate the U.S. approach to the world. Economic sanctions have become the dominant weapon, to the detriment of U.S. global economic and strategic interests.

Burma Becomes Public Enemy No. 1

Burma has not traditionally been a top foreign policy concern for Washington, although it does have some limited effect on U.S. economic and strategic interests as well as on counternarcotics policy. (Burma is the world’s largest grower of opium.)

Washington has sought to isolate Burma since the State Law and Order Restoration Council came to power in 1988, and especially since it refused to transfer power in 1990 to the National League for Democracy, which had defeated the SLORC in an open election. (Burma’s ruling junta officially abolished the SLORC in November 1997, only to replace it with the equally repressive State Peace and Development Council.)

The United States has refused, among other things, to recognize the government’s change of the country’s name to Myanmar, but it has maintained limited diplomatic and economic ties as well as counternarcotics cooperation with Rangoon. In 1990 Washington withdrew its ambassador from Rangoon, and since then it has opposed Burma’s membership in various multilateral financial organizations, refused to approve licenses for the export of military-related items to Burma, and imposed limited economic sanctions on that country (for example, suspending Burma from the U.S. Generalized System of Preferences).

Since 1990 the U.S. policy of isolating Burma has been rejected by America’s trade partners in Asia, who happen also to be Burma’s major trade partners, but it has received some symbolic backing from Washington’s Western allies.

Congress Targets U.S. Trade, Investment

Reflecting the U.S. frustration over the inability to force domestic political changes on Burma, Congress, supported by an impressive bipartisan political movement, launched a legislative assault on Burma. Numerous resolutions, amendments, and bills condemned the military regime in Burma and threatened economic sanctions against it and funding for pro-democracy programs in that country. Indeed, judging by the press attention and column inches in the Congressional Record in the early 1990s, it appeared that Burma had become one of Washington’s top foreign policy concerns.

In 1990 Congress passed the Customs and Trade Act, enabling the president to impose new sanctions against Burma, which then-president Bush declined to do. In 1993 the Senate passed a resolution calling on President Clinton to work for the immediate release of the Burmese opposition leader Aung San Suu Kyi and for adoption of a United Nations embargo against Rangoon. President Clinton expressed support for the resolution but did not take any serious steps to implement it.

Finally, in the Republican-controlled 104th Congress of 1995-96, both the Senate and the House of Representatives threatened to drop a legislative “nuclear bomb” on Rangoon. The 1995 Free Burma Act,(6) introduced by Sen. Mitch McConnell (R-Ky.), called for the imposition of stiff economic and trade sanctions on Burma, as well as on countries that trade with and provide aid to that country (a provision that was later deleted). Similar legislation, the Burma Freedom and Democracy Act, was introduced in January 1996 by Rep. Dana Rohrabacher (R-Calif.).(7) Later in 1996 a successful amendment by Sen. Dianne Feinstein (D-Calif.) and then-senator William Cohen (R-Maine) to the fiscal year 1997 Foreign Operations Appropriations Act permitted the president to determine if and when to impose sanctions against Burma. The measure provided the administration the diplomatic flexibility to decide whether the SLORC had improved its human rights policy.

Clinton Administration Reluctantly Joins the Cause

The Clinton administration had earlier tried to respond to congressional pressure by announcing various reviews of its Burma policy and sending State Department officials to Rangoon. It argued that some form of diplomatic cooperation with Rangoon on human rights, democratization, and counternarcotics measures could produce positive results, asserting that the SLORC’s response to the U.S. approach was “mixed.” For example, Aung San Suu Kyi and other political prisoners were released, and Rangoon agreed to cooperate with U.S. counternarcotics efforts, including a survey of opium production.(8)

But rising political repression by the SLORC and growing congressional pressure on the administration forced President Clinton—following months of public and intrabureaucratic debates, including leaks to the press warning the business community of impeding U.S. action—to finally “do something.” And since the administration concluded that, if anything, the military junta’s political repression had become harsher, it decided to move ahead with the Burma sanctions.(9)

On May 20, 1997, President Clinton issued Executive Order 13047, which took effect on May 21, banning most new U.S. investment in “economic development of resources in Burma.” To justify the ban, the president cited a “constant and continuing pattern of severe repression” of the democratic opposition by Burma’s ruling junta. Clinton said the SLORC had “arrested and detained large numbers of students and opposition supporters, sentenced dozens to long-term imprisonment, and prevented the expression of political views by the democratic opposition.” Clinton stressed that under Rangoon’s “brutal military regime, Burma remains the world’s leading producer of opium and heroin and tolerates drug trafficking and traffickers in defiance of the views of the international community.” He added that relations between the Burmese government and the United States would improve only if there was “a program on democratization and respect for human rights.”(10)

The decision to impose sanctions on Burma was championed by Secretary of State Madeleine Albright. Even before her appointment as America’s top diplomat, Albright had established close political and personal ties with Burma’s opposition NLD and its charismatic leader, Nobel Peace laureate Aung San Suu Kyi. But President Clinton and his top economic and national security advisers were not enthusiastic about the sanctions. The administration was worried about the effect of the move on the position of U.S. companies operating in Burma as well as on Washington’s relationship with the Association of Southeast Asian Nations.

America’s ASEAN allies argued that only a dialogue with the regime in Rangoon would lead to political changes in Burma. Without engagement with ASEAN, its members argued, there was a danger that the country would form closer ties with China, a development that would pose a direct strategic threat to Vietnam and an indirect one to the United States. But none of those strategic considerations was enough to dissuade the administration from imposing sanctions.

State and Local Governments Enter Foreign Policy Fray

Press and pressure-group attention spurred various state and local governments to pass laws that prohibited U.S. and foreign companies that trade and invest in Burma from receiving public contracts in their jurisdictions, or restricted their ability to do so. Mobilization of the state and local governments in the campaign against Burma was modeled on bills adopted by some 130 cities and 28 states in the mid-1980s that targeted South Africa’s apartheid regime. Among the state and local governments that joined the Burma campaign by passing or considering “selective purchasing ordinances” were the Commonwealth of Massachusetts; the cities of San Francisco, Oakland, and New York; and several other local governments, including those of the small, liberal college towns of Madison, Wisconsin, and Berkeley, California. Altogether, at least a dozen cities have passed anti-Burma legislation.(11) A number of universities and other academic institutions have jumped on the anti-Burma bandwagon by divesting themselves of stock in companies that do business in Burma.(12)

Legal scholars have challenged the constitutionality of those local forays into foreign affairs. In a recent article in the Vanderbilt Journal of Transnational Law, David Schmahmann and James Finch conclude that state and local sanctions against Burma run afoul of at least three constitutional principles.(13)

First, the sanctions appear to violate article VI of the U.S. Constitution, which declares that laws and treaties passed by Congress shall be “the Supreme Law of the Land.” In a string of cases, the U.S. Supreme Court has ruled that federal policy “preempts” any state or local authority in matters of foreign affairs. By rejecting the McConnell bill that would have banned U.S. investment in Burma, Congress established a policy that clearly conflicts with, and preempts, the sanctions imposed by Massachusetts and other subfederal units of government.

Second, the foreign commerce clause in article I, section 8 of the U.S. Constitution grants explicit and exclusive power to Congress “to regulate commerce with foreign nations.” By seeking to influence the direction of foreign investment, state and local sanctions against Burma violate the Supreme Court’s interpretation of the clause as saying that the nation must “speak with one voice” on foreign commercial relations.(14)

Third, the supremacy clause of the Constitution in article VI grants the federal government exclusive power to conduct foreign policy. In a series of rulings, the Supreme Court has struck down state and local efforts to meddle in America’s relations with foreign states.

Despite the strong legal case, U.S. firms have been reluctant to challenge state and local sanctions on constitutional grounds. The authors of the Vanderbilt Journal article blame politics: “Few corporations would have been bold enough to challenge a community’s censure of apartheid, and not many more will want to be perceived as supporting the SLORC regime in remote Burma.”(15)

The main legal challenge to state and local sanctions has been in the international sphere, where local communities that adopt their own foreign policy are in conflict with international trade law as administered by the World Trade Organization. The European Union has filed a complaint against the Massachusetts anti-Burma measure before the WTO, and other challenges are in the pipeline.(16)

The growth of state and local sanctions places Washington on a collision course with foreign governments and firms and creates a headache for U.S. companies. As one journalist described it, “Trying to monitor the foreign policy of 50 states and 7,284 municipalities is, to put it mildly, a nightmare for companies and national governments alike.”(17) Considerable hypocrisy is apparent in some of those actions. For example, the city of Seattle is considering the imposition of sanctions against economically marginal Burma but would never ponder a similar move against China, a major buyer of aircraft produced by the Boeing Corporation, a local company.(18)

The Futility of Sanctions

One of the most powerful arguments against unilateral economic sanctions is that they rarely work. Sanctions are an inherently flawed strategy because the kind of regime likely to become the target of U.S. sanctions—an authoritarian regime in a less developed country such as Burma—is also the least sensitive to unilateral U.S. economic pressure. Indeed, by reducing the influence of U.S. companies in the target country and driving a wedge between the United States and its allies, unilateral sanctions are likely to be counterproductive.

A Record of Failure

Economic sanctions have failed dismally in the past. The record of U.S. foreign policy is chock full of sanctions that did not bring about the intended change in the target country. Since 1970 unilateral economic sanctions imposed by the United States have failed to work in 87 percent of the cases in which they have been tried.(19) Among the more spectacular fiascoes were the grain embargo against the Soviet Union in retaliation for its 1979 invasion of Afghanistan and the 1982 sanctions against companies that participated in building the Soviet natural gas pipeline to Western Europe. In both cases U.S. exporters and investors lost business to foreign competitors while Soviet behavior was unaffected. After 35 years the U.S. embargo against Cuba has failed to topple the Castro regime. Its only real impact has been to push the long-suffering people of Cuba deeper into poverty.

Advocates of sanctions have pointed to Haiti, Iraq, and South Africa as examples of success. But the political change in Haiti came about only after the United States prepared to invade the island. And the United Nations-imposed embargo on Iraq did not force Saddam to withdraw from Kuwait; it was the U.S. military campaign against Baghdad that achieved that goal. In South Africa sanctions accomplished nothing until the end of the Cold War changed the political dynamic in that country. Furthermore, those sanctions were imposed by a broad coalition of its major trading partners and were aimed at a government that was democratically responsive to a sizable (albeit minority) segment of the population. Neither of those conditions applies to the vast majority of sanctions imposed by the United States in recent years, including those against Burma.

America’s Limited Leverage

America’s potential leverage over Burma has always been marginal at best. The United States is only the fifth largest foreign investor in Burma (Britain, France, Thailand, and Singapore lead the list), with total investments of $226 million.(20) U.S. investment accounts for less than 10 percent of total foreign direct investment, and the share may be even smaller because of Burma’s large black-market economy. For example, in 1993 total imports and exports reached nearly $2 billion, but the value of black-market trade with India and China was about $1 billion.(21) In 1994 the United States accounted for about 1 percent of Burmese imports and took in about 7 percent of that country’s exports. China, Singapore, and the rest of the Asian countries were the origin of about 90 percent of Burma’s imports; and India, Singapore, and China were the three main destinations for its exports.(22)

Those figures suggest that the U.S. economic stake in Burma is limited and that Burma therefore is not susceptible to U.S. economic pressure. Cutting U.S. economic ties with Burma will only reduce the already limited leverage the United States has on Rangoon. Consequently, the failure of U.S. unilateral sanctions to change the behavior of Burma’s rulers is inevitable.

U.S. Policy Alienates Allies

The United States has failed to rally its allies to its campaign against Burma. In 1997 ASEAN admitted Burma as a member; the European Union has imposed only limited and symbolic sanctions on Rangoon, declining to go beyond suspending Burma’s access to duty-free entry to its market,(23) and Australia has refrained from doing even that. Now those allies are legitimately concerned that the United States, having failed to persuade them, will attempt to coerce them to follow its policies against Rangoon.

That anxiety reflects the political realities of Washington. Congress was able, after all, to force the Clinton administration to support both the Cuban Liberty and Democratic Solidarity Act and the Iran and Libya Sanctions Act. Both of those acts threaten to impose U.S. sanctions on or to take other actions against the companies of third countries if those countries fail to follow the U.S. line on sanctions.

Those acts of legislation represent the final stage of a now familiar pattern. First, the United States adopts unilateral economic sanctions to force rogue regimes to change their behavior. When that does not work, Washington tries to convince its trade partners and diplomatic allies to join in the sanctions crusade. And when they refuse to do that (as they usually do, with rare exceptions such as the case of Iraq), the United States raises the ante by adopting secondary boycott measures against its reluctant friends.

Since Rangoon is not expected to improve its human rights policies anytime soon and ASEAN and the European Union almost certainly will continue to resist American pressure to apply tougher sanctions, U.S. lawmakers may indeed decide to pressure the administration to reinforce its Burma sanctions with secondary boycotts. That move could bring the United States into a major confrontation with trade partners such as Japan and Singapore, which invest heavily in Burma, as well as with the entire membership of ASEAN.

Indeed, the potential for long-term confrontation with ASEAN is one of the most troubling aspects of the Burma sanctions. Sanctions are seen in the region as part of a general U.S.-led Asia-bashing campaign, with Washington weighing economic sanctions against another ASEAN member, Indonesia, to punish it for its repression in the former Portuguese colony of East Timor and for its lack of American standards of labor rights, as well as against China, Southeast Asia’s neighboring economic powerhouse.(24)

U.S. Fumbles a Win-Win Opportunity

Allowing ASEAN to lead the way on policy toward Burma would have been a realistic and cost-effective approach on the part of Washington. A more cooperative policy would have encouraged ASEAN to exert diplomatic pressure on Rangoon while allowing the United States to avoid heavy-handed intrusion in regional politics. The United States could have continued drawing the benefits of doing business with Burma as it waited for the ASEAN governments to deliver the goods in the form of a growing willingness on the part of the regime in Rangoon to expand its political dialogue with the opposition NLD. It is the ASEAN members, after all, that have a direct interest in preventing China from bringing Burma into its sphere of influence and encouraging Burma to instead join the regional system.

One of the main reasons for ASEAN’s opposition to the U.S. position stems from its members’ adherence to the principle of noninterference in the internal affairs of other members, reflecting the fact that their political systems range from democracy (the Philippines) to soft authoritarianism (Indonesia) to communism (Vietnam). That is a political reality that Washington should recognize. The notion that diplomatic and economic relationships with a decaying communist regime in Hanoi are proper from a moral perspective, while similar ties with a military junta Rangoon are not, smacks of hypocrisy. In fact, a U.S. decision to delay sanctions might have persuaded ASEAN to delay the admission of Burma to the organization.

As one expert put it, the dispute between the United States and ASEAN “brought both the romanticism of the West and the pragmatism of Southeast Asia into sharp relief.” It has pitted Washington’s unrealistic tactic of using sanctions to promote democracy in Burma, an “act of a country that doesn’t have to live with the consequences of its actions,” against the more cautious strategy pursued by nations that would have to suffer the consequences of political and economic instability in Burma that could result from a concerted policy aimed at isolating that country.(25)

After all, if American sanctions generate instability in Burma, it is ASEAN that will have to repair the damage. Even the toughest hawks would shrink from sending U.S. troops to Burma if that country fell apart. As Foreign Minister Domingo Siazon of the Philippines suggested, “Those who are far away, if this particular case should not turn out to be successful, they do not really suffer the consequences. We are involved, we are near. You cannot leave [Burma] to collapse or to have an internal revolution.”(26)

A Strategic Boon for China

The U.S. policy of isolating Burma has had the perverse effect of strengthening China’s hand in the region as it weakens our own. As former White House and State Department official Peter Rodman has pointed out, U.S. friends in ASEAN “disagree with the policy of isolating Burma and are eager to bring Burma into their group—to counter the Chinese attempt to suborn it as a military ally.” America’s sanctions on Burma “are thus a great boon to China,” suggested Rodman, adding that “the law of unintended consequences is at work here, as in so many other instances where Americans seek moral ends without all that much care as to the practical effects.”(27)

ASEAN members share that concern. Although Burma shares borders with other ASEAN states, in its isolation, it “has drifted toward Beijing, its major arms supplier.”(28) It is indeed ironic that many people on both the left and the right who back the idea of containing China, for ideological or strategic reasons, also support isolating Burma, which of course plays directly into China’s hands.

America’s Self-Inflicted Wounds

No one denies that American-imposed sanctions on Burma or other countries harm the interests of American companies in the countries targeted for punishment. As noted, in addition to creating the impression that U.S. companies are not reliable suppliers of goods and services, sanctions damage the good reputation of American businesses in the region and around the world. Sanctions create an environment of political and economic uncertainty in which risk assessment is chaotic, a situation that is usually bad news for business.

The imposition of sanctions provides competitive advantage to foreign companies that end up exploiting the trade and investment opportunities denied to American companies. For example, before sanctions were imposed on new investment, White Plains, N.Y.-based Texaco was the operator of the Yetagun field, located about 125 miles off the coast of Burma, that is believed to hold 1.1 trillion cubic feet of gas. But following the sanctions decision, the company moved to sell its interest to a British company. “In effect, the sanctions against Burma only hit our global oil companies to the benefit of French and British competitors,” concluded economist Paul Craig Roberts.(29) Even when sanctions have been part of a concerted and enforceable multilateral regime, they have usually failed to force changes.(30)

Before the Clinton administration decided to impose sanctions on Burma, separate anti-Burma moves by state and local governments had already produced negative effects on American companies. For example, when San Francisco attempted to upgrade its 911 emergency telephone system in 1996, the only two bidders with the technological wherewithal to handle the $40 million project, Motorola and Erricsson, had both run afoul of the city’s Burma-or-us law banning contracts with companies that deal with that country’s military regime. Facing such pressure, Motorola decided to clear out of Burma. Similarly, in October 1996, Apple announced that it would stop selling computers in Burma as a result of a Massachusetts selective purchasing law; Eddie Bauer and PepsiCo also pulled out of that country under pressure from state and local governments.(31)

This is clearly a self-inflicted punishment of American companies and workers. And when U.S. companies lose markets and investment opportunities abroad, the wealth of the United States is diminished. One study estimates that U.S. companies were losing $15 billion to $19 billion annually in exports in 1995 because of sanctions imposed by the U.S. government against 26 target nations. Sanctions may cost the U.S. economy $1 billion a year in lost wage premiums in the export sector.(32)

Sanctions Fall Hardest on People of Burma

What really matters is that the Burma sanctions have not worked to achieve their political goals of domestic change. The SLORC/SPCD junta remains in control and is not facing any serious challenge to its power. As many of the businesses operating in Burma have pointed out, the sanctions’ main victims are the Burmese people themselves.

When it comes to advancing political and economic reforms, U.S. companies in Burma are part of the solution, not the problem. “The presence of U.S. companies abroad helps to promote the values we as a nation espouse, including human rights and fair labor standards,” noted Ernest Bower, president of the U.S.-ASEAN Council and one of the leading opponents of sanctions. U.S. companies train workers and transfer technology more readily than do their Asian and European competitors. They promote democratic values, set a positive example, and improve the general quality of life by providing fair pay, safe working conditions, and health and education benefits. American foreign investment in Burma “is an extremely effective means of advancing economic and social development, and should not be abandoned in favor of measures which have no chance of success,” argued Bower.(33)

One objection raised to U.S. investment in Burma is that foreign companies are often required to deal directly with government ministries and state-owned enterprises, including those tied to the defense ministry. Advocates of sanctions argue that those joint ventures do more to prop up the government than to nurture an alternative private sector. Dealing with the government is difficult to avoid in a country where socialism has guided government economic policy for decades. Even when working jointly with state-tied companies, American-owned investment brings higher wages, new technology, and Western-style labor practices to workers in Burma. Outside investment strengthens private institutions while exerting influence on the government to liberalize its economic policies. The same influence has been at work in China, where foreign direct investment, even when in partnership with state-owned enterprises, has profoundly and positively affected the lives of Chinese workers.

Unocal’s Positive Impact in Burma

One of the most prominent investors in Burma has been Unocal Corporation. Based in El Segundo, California, the company is helping to develop the offshore gas field in the Andaman Sea and to build, in a joint venture with Total of France, Thailand’s PTT, and Burma’s MOGE, a $1.2 billion, 254-mile natural gas pipeline to transport the gas to Thailand. The Yadana field is believed to contain 5.7 trillion cubic feet of gas. Production from that field, which is to begin in 1998, will reach 525 million cubic feet of gas a day during the first phase and probably 690 million cubic feet a day later on.

Since the Yadana project was well under way when the ban was issued in May, Unocal’s Burmese operations are grandfathered under the sanctions. But officials in the company said that the ban could hinder Unocal’s agreement to bid for oil and gas exploration rights nearby and create doubts about the commitment of the company to remain active in Burma if, for example, Congress decides to adopt tougher sanctions, such as those in the McConnell bill. In any case, the company cannot build its business in Burma beyond its current single project.

Unocal’s investment benefits the people of Burma in a number of ways. Its project is bringing natural gas to Thailand from offshore Burma, providing a clean source of energy for a region suffering, like the rest of Southeast Asia, from pervasive pollution. The construction of the onshore section of the pipeline that the company is erecting in Burma is creating jobs, new opportunities for the 35,000 people who live in the area, which is one of the poorest regions in the country. Unocal and its partners in the project have begun a three-year, $6 million program to provide improved medical care, better schools, electrical power, and sustainable development of livestock and farming in the pipeline region.(34) The project “is an example of economic development contributing to lasting social change,” according to the NAM study on sanctions.(35) Or as Unocal president John F. Imle Jr. wrote, “Sanctions are counterproductive. They hurt people, not regimes.” Noting the failure of U.S. sanctions to depose Fidel Castro, Imle asserted, “Economic progress, fueled by foreign investment, provides the foundation for more-democratic and open societies.”(36)

Some of the advocates of sanctions against Burma charge that forced labor has been used to help build the pipeline. Although the government of Burma routinely conscripts civilians to work on state construction projects, the evidence is strong that forced labor has not been used on the Unocal pipeline project. In a January 1997 human rights report on Burma, the U.S. Department of State acknowledged the allegations of forced labor but concluded, “The preponderance of evidence indicates that the pipeline project has paid its workers at least a market wage.”(37) In other words, there is no persuasive evidence that forced labor has played any role in building the pipeline. Instead, as have most other foreign investment projects in developing countries, the pipeline project has paid wages at or above those in the prevailing labor market.

The very presence of American companies like Unocal, “grounded in American traditions, pressured by the human rights expectations of the U.S. public and monitored by the Western media, probably works as a speed bump to slow down SLORC,” agreed University of California-Los Angeles professor Tom Plate in a Los Angeles Times column. “But because Burma leads the evil-empire league of the moment, Unocal becomes the cause celebre of the year in the U.S.” If the human rights lobby gets its wish and American investment continues to run away from Burma, “the Burmese people could wind up in far worse shape.” If anything, there is a need for more, not less, U.S. investment in the country, and a guilt-ridden exit by American companies “could well mean no exit, at least in the foreseeable future, for the people of Burma,” Plate concluded.(38)

As a former Bush administration official has argued, “Trade sanctions can function like a neutron bomb, destroying the economy, wreaking misery on the general population but leaving the policy establishment intact.”(39) If anything, the collapse of authoritarian regimes or any improvement in their behavior is “more likely to be delayed by sanctions, which provide governments with an external scapegoat for their own failings, serve as an excuse to repress political opposition and often ignite a popular will to resist” external pressure.(40)

Sanctions Slow Burma’s Liberalization

Burma is a nation with huge potential human resources. Its 45 million people “are highly literate, skilled, and fully capable of making a significant contribution to the economic growth in the region.”(41) Burma is also a country with plentiful natural resources including natural gas, mineral deposits, precious metals and gems, high-quality tropical hardwoods, and freshwater and marine fisheries.

In recent years, while continuing to maintain tight political control over the country, the military regime has allowed Burma to gradually emerge from decades of self-imposed isolation and open itself economically. Indeed, its economy has begun to grow and attract foreign investment. After several years of stagnation in the late 1980s and early 1990s, Burma’s economy grew by an estimated 6 percent in 1994 and by an estimated 8.2 percent in 1995. Similarly, per capita income has risen modestly, from about $198 in 1993 to $224 in 1995. Under the regime’s economic reform program, exports were expected to increase by 30 percent from 1994 to 1997. And the Privatization Commission led by the government’s first secretary, Lt. Gen. Khim Nyunt, is responsible for privatizing government-controlled enterprises. According to some figures, the private sector now accounts for close to 80 percent of gross domestic product and is expected to grow in the coming years. Japanese and South Korean experts are assisting in the creation of a stock exchange, and foreign currency regulations and tax regulations are being liberalized as the regime is approving larger amounts of foreign investment in the country. Such investments reached more than $2.5 billion in 1995, up from $735 million in 1992.(42)

Burma’s integration into ASEAN is expected to accelerate the process of economic growth and provide new opportunities for foreign businesses, although the economy will continue to face major problems. U.S. unilateral sanctions against Burma will have only a limited effect on that process, since other nations that already have substantial foreign investment in Burma will proceed with that investment. In fact, since a lack of managerial skills seems to be one of the major obstacles to the growth and reform of the Burmese economy, U.S. economic disengagement from that country is preventing Burma’s Western-oriented business elite from acquiring the expertise needed to integrate Burma into the global economy. Hence, while Congress and the Clinton administration sing the praises of globalization, their policies toward Burma run contrary to that goal.(43)

Advocates of sanctions point out that opposition leader Aung San Suu Kyi supports sanctions against her own country. If she favors sanctions, who are we to decide that sanctions would be bad for her countrymen? But that line of reasoning dodges the all-important question of whether sanctions are good policy. Aung San Suu Kyi’s courageous opposition to a repressive regime deserves respect, but that does not necessarily mean that Western nations must endorse her choice of tactics. The fact that the opposition within a country has endorsed a policy that hurts nearly everyone involved and has little prospect of succeeding does not require the United States to follow the same questionable path.

Challenging the Sanctions Mentality

The proliferation of sanctions has led to a debate in Congress and the media over the diplomatic utility of economic sanctions. Sen. Richard Lugar (R-Ind.) and Reps. Lee Hamilton (D-Ind.) and Phil Crane (R-Ill.) have drafted a bill to require that Congress study and consider the effects of unilateral sanctions before moving to impose them on this or that country. The bill would also require a determination of whether sanctions would achieve their declared goals of changing the target country’s foreign or domestic policies and of the costs of the sanctions to the U.S. economy.(44) Still other proposals aimed at stemming the sanctions onslaught include a requirement that Congress determine that any sanctions be in the “national security interest” before they can be imposed and that the U.S. government provide compensation to U.S. companies whose investments are lost or devalued as a result of U.S.-imposed sanctions.(45)

Now, Congress exercises caution only if the potential cost of sanctions is relatively high. Despite the fact that Saudi Arabia is one of the world’s leading abusers of human (especially women’s and religious) rights, Congress has not seriously considered imposing trade sanctions against the world’s largest oil-exporting economy. Nor did the effort to impose trade sanctions against China, one of America’s major export markets, move beyond the stage of drafting bills and bashing Beijing on Capitol Hill. Lawmakers recognize the political backlash that they could suffer as a result of rising oil prices, as a result of sanctions against Saudi Arabia, or loss of American jobs, as a result of sanctions imposed on China. So it is the small or economically vulnerable kids on the global bloc, like Burma and Cuba, Iran and Iraq, that will continue to be the targets of sanctions. Meanwhile, innocent civilians living in those countries will suffer as a result of American politicians’ new policy.

Another alternative to the current abuse of sanctions is a voluntary code of conduct for foreign companies operating in Burma or other countries that violate human rights principles. Such a code would be modeled on the Sullivan Principles that were adopted by American companies that did business in apartheid-era South Africa.(46)

The pro-business approach to human rights is based on the notion that the effects of U.S. investment in and trade with Burma (or, for that matter, China or Cuba) would be conducive overall to economic and political reform, and by extension to the strengthening of human rights. U.S. companies act as a “liberalizing force, helping to strengthen the private sector, establishing alternate centers of power, and creating subtle but important pressure for democratic reforms.”(47) They also help raise wages and labor standards in those countries and participate, as in Burma, in the building of schools, hospitals, and roads that local governments cannot finance. The onus lies on supporters of sanctions to prove that the citizens of Burma, and those of other nations targeted for sanctions, would be better off without American investment and trade. Up to now, they have failed to do that, requesting that we all join them in a journey to the unknown, at the end of which, we are promised, sanctions will bring us to the promised Jeffersonian land of democracy and freedom.

We have already taken the pro-business road in China, South Korea, the Philippines, and Latin America; and the process of economic and political reform has, indeed, been accelerated and not retarded by U.S. business engagement. China has clearly demonstrated the positive effects of U.S. investment. As an American investment banker points out, the areas of China where U.S. investment has been highest, coastal Guangdong and Fujian Province, are also the most politically progressive.(48)

Instead of trying to reform the sanctions process by making it more “goal oriented” or by forcing the U.S. business community to support campaigns to isolate other nations, Washington policymakers should realize that economic sanctions are bad policy and that any attempt to make them work better is a contradiction in terms. As noted, most studies suggest that unilateral economic sanctions have done almost nothing to change the domestic balance of power in targeted nations, such as Iran, Iraq, Libya, or Cuba, where the mullahs, Saddam Hussein, Muammar Kaddafi, and Fidel Castro, respectively, remain in control. If anything, their power has been strengthened by the economic and diplomatic isolation imposed on them by the United States. Their policies toward the United States have been determined primarily by strategic considerations, in particular, American military power, and have nothing to do with the U.S. economic embargoes imposed on them.

Conclusion

The sanctions policy against the government in Rangoon never had any chance of working because of the refusal of ASEAN, Japan, China, and the European Union—Burma’s largest trading and investment partners—to support it. The policy has created diplomatic and economic tensions between the United States and its allies in ASEAN and deprived Washington of the option of adopting the policy of working with those nations to integrate Burma into the regional system and the global economy and trying to influence the political balance of power in Rangoon through quiet, behind-the-scenes diplomacy. The chaotic campaign to isolate Burma by a mishmash of federal, state, and local sanctions is hurting American companies by increasing the risk to their businesses in Burma, Southeast Asia, and around the world. It forces American firms to operate in an unstable and uncertain business environment, providing a competitive advantage to foreign companies in Burma and Southeast Asia.

Unfortunately, things will only get worse if Congress decides to adopt some form of secondary boycott legislation to punish foreign companies, including those based in Singapore and Japan, that trade with and invest in Burma, or if there is a serious attempt by Congress to impose sanctions against Indonesia. Indeed, one lesson of the history of economic sanctions is “that once launched, sanctions are very difficult to terminate, with domestic politics militating against an administration’s attempt to ‘back down.’”(49) Hence, one can expect a self-perpetuating cycle of Burma sanctions, with the inevitable refusal of Rangoon to implement political reform (strengthened by internal resistance to U.S. sanctions), leading to new and harsher sanctions against Burma.

Conflict created by U.S. policy toward Burma will only raise the cost of promoting U.S. economic and strategic interests in the region, at a time when the rise of China and changing U.S. military and diplomatic relationships with Japan and South Korea are creating a sense of growing strategic uncertainly in East Asia, and when the financial turmoil in Southeast Asia, South Korea, and Japan is slowing economic growth in the Pacific Rim.

In the final analysis, U.S. policy toward Burma is an irresponsible moral posturing. Supporters of sanctions want to feel good that they are doing something to improve political and economic conditions in Burma by forcing someone else—American businesses, the ASEAN nations, and the Burmese people—to bear the costs. The result will be reduced access of the Burmese people to American products, people, and ideas; worsening economic conditions; and potential political and regional instability. It is indeed ironic that some members of America’s cosmopolitan knowledge class, who are the main beneficiaries of the process of economic globalization, are supporting policies that run contrary to free trade and open markets and deny the Burmese people the ability to enjoy the fruits of the global economy.

Notes

1. Robert Corzine and Nancy Dunne, “U.S. Business Hits at Use of Unilateral Sanctions,” Financial Times, April 16, 1997; David Kirschten, “Chicken Soup Diplomacy,” National Journal, January 4, 1997; and David Kirschten, “Economic Sanctions: Speaking Loudly … But Carrying Only a Small Stick,” National Journal, January 4, 1997.

12. See, for example, “American University Restricts Business Ties to Burma,” American Scene, Fall 1997.

13. David Schmahmann and James Finch, “The Unconstitutionality of State and Local Enactments in the United States Restricting Business Ties with Burma (Myanmar),” Vanderbilt Journal of Transnational Law 30, no. 2 (March 1997): 184-202.

19. Kimberly Ann Elliott, Institute for International Economics, “Evidence on the Costs and Benefits of Economic Sanctions,” Statement before the Subcommittee on Trade of the House Ways and Means Committee, October 23, 1997. The text of her statement can be found at http://www.iie.com/sanctns.htm.

33. Ernest Z. Bower, president, U.S.-ASEAN Council for Business and Technology Inc., Statement before the Senate Committee on Banking, Housing and Urban Affairs, May 22, 1996. Some of the other figures and information referred to in this section were mentioned in the testimony and related material issued by the council.

34. “Why Unocal Ignores Calls for Myanmar Sanctions,” Asia Times, August 13, 1997. See also Unocal’s Web page, “Unocal in Myanmar Background,” which includes information on the company’s efforts to improve education, health, and development in that country. http:/www.unocal.com/myanmar/brmabkgd.htm.

35. National Association of Manufacturers.

36. John F. Imle, “A Case for Investment in Burma,” International Herald Tribune, February 6, 1997.

37. U.S. Department of State, Bureau of Democracy, Human Rights, and Labor, “Burma Report on Human Rights Practices for 1996,” January 30, 1997, at http://www.usis.usemb.se/human/burma.html.

Leon T. Hadar is an adjunct scholar of the Cato Institute and a Washington, D.C.-based journalist who covers international politics and economics with a special interest in East Asia and the Middle East.